Rice is Thailand’s main crop for both export and domestic consumption. Seasonal plantation occupies 58 million rai while dry-season plantation covers 10 million rai, giving a total growing area of 68 million rai, or 51 per cent of the country’s agricultural land.

The total annual yield of paddy (rice in its husk) is 25 million tonnes. Domestic use accounts for 10 million tonnes, one million tonnes are used for re-cultivation, and two million tonnes are used in food processing.

Exports account for 12 million tonnes of paddy, which is equivalent to 7 million tonnes of white rice. At present, the categories of white rice exported are white rice (41.8 per cent), fragrant rice (27.6 per cent) and parboiled rice (14 per cent).

Although Thailand ranks sixth after China, India, Indonesia, Bangladesh and Vietnam as a rice producer, the Kingdom has been the world’s largest exporter since 1965 (when 1.8 million tonnes were sold overseas). Last year, Thailand’s major export competitors were Vietnam, the United States, India and China.

The country with the highest domestic consumption is still China (135 million tonnes), followed by India (85 million tonnes) and Indonesia (36.65 million tonnes). In the case of China and Indonesia, local production is unable to match domestic consumption, leading to the need for rice imports.

The rice production and trading cycle starts when farmers plant rice, harvest it and sell it to middlemen as soon as possible to avoid any losses since they do not have barns to store their paddy. The middleman, in turn, will sell the paddy to a rice miller, who will process it into white rice before selling to traders. Finally, the white-rice traders will channel the rice to local or foreign markets.

White rice 5 per cent broken (WR5) was listed on the Agricultural Futures Exchange of Thailand (Afet) on August 26 last year. As this grade of rice has clear standards specified by the Commerce Ministry in 1997, its price can be used as a benchmark for other higher or lower grades of rice. The market prices of the various grades of rice, on average, move up or down in unison, depending on supply and demand. More and more rice traders have started utilising Afet’s pricing and trading mechanism to hedge their trades and manage future price risks.

Rice speculators on foreign commodity exchanges have also kept their eye on the price movements of white rice 5 per cent on Afet as the commodity prices on each exchange can influence one another. It’s one sure way for these investors to avoid getting cooked in the future.

More information on the contract specifications of white rice 5 per cent is available on the Afet website, at www.afet.or.th.

Panchai Aroonpairoj is vice president at Afet’s Market Surveillance Department.